Layered halide perovskites have recently shown extraordinary potential for low‐cost solution‐processable optoelectronic applications because of their superior moisture stability over their 3D counterparts. However, few studies have investigated the effect of light on layered hybrid perovskites. Here, the mechanically exfoliated nanoflakes of the 2D perovskite (PEA)2PbI4 (PEA, 2‐phenylethylammonium) are used as a model to investigate their intrinsic photostability. The light‐induced degradation of the flakes is investigated by using in situ techniques including confocal laser scanning microscopy, wide‐field fluorescence microscopy, and atomic force microscopy. Under resonant photoexcitation, (PEA)2PbI4 degrades to PbI2. It is clearly shown that this process is initiated at the crystal edges and from the surface. As a consequence, the photoluminescence of (PEA)2PbI4 is progressively quenched by surface traps. Importantly, the light‐induced degradation can be suppressed by encapsulation using hexagonal boron nitride (hBN) flakes and/or polycarbonates. This report sheds light on a specific mechanism of light‐induced degradation in layered perovskites and proposes a new encapsulation method to improve their photostability.